The Massachusetts Department of Family and Medical Leave (DFML) recently released additional guidance on the upcoming Paid Family and Medical Leave Program (PFML) and its application to 1099-MISC workers. Under PFML, employers may be required to make contributions on behalf of their 1099-MISC workers, depending on the makeup of the workforce. The new DFML guidance speaks to when employers should count 1099-MISC workers as a part of their workforce count.
Compliance Snapshot: For purposes of the PFML workforce count, employers should not count 1099-MISC workers who are considered “independent contractors” under the Massachusetts unemployment statute.
Background
Under Massachusetts PFML, certain employers are responsible for remitting contributions for “covered individuals” that perform services localized in Massachusetts. While W-2 employees are always “covered individuals,” 1099-MISC Contractors may be “covered individuals” under PFML. Whether an individual is a “covered individual” depends on the employer’s workforce count and the makeup of their workforce during the prior year.
New Guidance on 1099-MISC workers
Under the new guidance, employers would not count 1099-MISC workers as a part of their total Massachusetts workforce count if they are considered “independent contractors.”
For a 1099-MISC worker to be counted in the employer’s total workforce count, the 1099-MISC worker must meet the four following criteria:
1. perform services as an individual entity;
2. live in Massachusetts;
3. perform services in Massachusetts; and
4. must not be an “independent contractor,” as defined in the Massachusetts unemployment statute.
Under the Massachusetts unemployment statute, employers can treat workers as “independent contractors” if they meet a three-part test. Independent contractors are workers who:
1. perform work without the direction or control of the employer;
2. perform work outside the usual course of the employer’s business; and
3. have their own, independent business or trade doing that kind of work.
Therefore, 1099-MISC workers who meet the above test are considered independent contractors and are not counted as members of the employer’s Massachusetts workforce. In other words, 1099-MISC contractors are only counted if they are not independent contractors (meaning they meet the three criteria listed above).
Employer Action Items:
- Massachusetts employers should determine whether their 1099-MISC workers are considered “covered employees” under PFML (and whether they must make contributions on behalf of any 1099 MISC workers).
- Employers should take the following steps:
(1) Total the number of Massachusetts W-2 employees for each pay period and divide the total by the number of pay periods in the prior year.
• Employers should count their workforce from January 1, 2018 to December 31, 2018 for 2019 contribution responsibilities.
(2) Total the number of 1099-MISC workers for each pay period and divide the total by the number of pay periods in the prior year.
• MISC 1099 workers are those who performed services as an individual entity, live in Massachusetts, performed services in Massachusetts and who were not independent contractors.
(3) Add the numbers in Steps 1 and 2 to determine employer’s average total Massachusetts workforce in the prior year.
(4) If in the prior year, the total workforce (the number in Step 3) consists of less than 50% of 1099-MISC workers (the number in Step 2) then the following is true:
• 1099-MISC are not counted towards the total workforce;
• Employer is not required to make contributions on behalf of the 1099-MISC workers; and
• Employers are not required to report payments made to 1099-MISC workers in their quarterly reports submitted to DFML.
(5) If in the prior year, the total workforce (the number in Step 3) consists of more than 50% of 1099-MISC workers (the number in Step 2):
• Employer’s 1099-MISC workers are included in the workforce count;
• Employer is required to make contributions on behalf of the 1099-MISC workers; and
• Employers are required to report payments made to 1099-MISC workers in their quarterly reports submitted to DFML.
- Employers first quarterly report and contribution submission for covered individuals in the fourth quarter of 2019 (October 2019 to December 2019) are due by January 31, 2020 via MassTaxConnect.
Additional Resources:
- Massachusetts Paid Family and Medical Leave Employer Deadlines Delayed and Final Regulations Released
- Massachusetts Paid Family and Medical Leave FAQs
- Employer’s Guide to Paid Family and Medical Leave
- Counting 1099-MISC Contractors
- Calculate your PFML Contributions
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